What is e-invoicing?
The global e-invoicing market
E-invoicing was a double-digit growth market in the last couple years and is expected to grow from the 2024 market size of EUR 8 bn to EUR 22 bn in 2028 with a CAGR of 27.9%, as shown in the figure below:
Figure 1: E-invoicing market size 2024-2028
Source: Billentis Report
In 2024 the estimated global volume of e-invoices and personalised receipts was 125 billion. This growth is driven mainly by the e-invoicing mandates that are already in place or are planned worldwide: currently more than 80 countries have already e-invoicing mandates in place or in the regulatory pipeline. The figure below shows the estimated number of e-invoices globally.
Source: Billentis Report
Figure 2:Estimated electronic invoices/personalised bills (2024, billions)
What is an e-invoice?
An electronic invoice (e-invoice) is an invoice that is issued, transmitted, received, processed, and stored electronically using specific document formats, which contain structured invoice data. E-invoices are digital throughout the entire document life cycle, from issuance to archiving.
If we take a simple pdf invoice, it does not constitute a true e-invoice, because only generating and sending the invoice happens digitally, but on the receiver side the invoice cannot be processed digitally.
How does an e-invoice look like?
An e-invoice can have a form of a pure structured invoice data issued in electronic data interchange (EDI) or XML formats, or a hybrid format which contains the data and a pdf invoice image together. The hybrid format ensures the possibility of both human and machine readability and therefore it is widely used.
What are the benefits of e-invoicing?
With e-invoicing 60-80% cost savings can be realized compared to paper-based invoice management. Almost all areas of invoice processing uncover significant savings potential both on issued customer and received supplier invoices.
The difference between paper-based and manual processes and digital processes that are enabled by e-invoice data is that digital processes ensure 100% accuracy as opposed to manual and OCR processing. The 100% data accuracy eliminates the room for mistakes, which cause a huge portion of costs in invoice management.
Figure 3: Savings potential for e-invoicing compared to paper-based invoice management
Source: Billentis Report (2019)
With the digital data business processes can be automated and the physical management (printing, sending, storing) of invoices can be fully digitalized – this is one important source of savings. The other important source of savings is that that e-invoice data ensures 100% accuracy as opposed to manual and OCR processing. The 100% data accuracy eliminates the room for mistakes and enables automated invoice validation and transaction matching, which is not possible without the availability of invoice data.
Why and how is e-invoicing important for different stakeholders?
The abovementioned benefits of e-invoicing can be utilized if invoice data is accessible for digital processing both on the sender and receiver side. Therefore, it is important to issue true e-invoices, so that accounting and ERP systems as well as payment systems on the receiver side can process the digital data.
The different stakeholders benefiting from e-invoicing:
- Tax authorities: their motive to introduce e-invoicing or continuous transaction controls lies in decreasing the VAT gap in each country. Therefore, currently approximately 80 countries have e-invoicing mandates in the legislative pipeline. Tax authorities have stepped to the path of digitalization with application areas beyond e-invoicing (e.g., introduction of SAF-T, digital inventory controls, digital customs, etc.), which requires additional digitalisation efforts from businesses. The regulatory measures from tax authorities are the most important driving force in increasing the usage of e-invoicing.
- Businesses: both small and large businesses can make their financial administration processes more efficient, starting with the invoice management itself. However, the availability of data enables to digitalize processes related to the whole financial supply chain including taxation (as required by the tax authorities), better supplier management and improved collections and working capital position.
- Consumers: consumer benefits are less quantifiable at this stage, but as invoice issuers start to send e-invoices and make new ways of bill payments available (such as request-to-pay), consumers will have the opportunity to manage their bills digitally and communicate with the bill issuer directly through the payment messages. Better communication benefits invoice issuers as they have a direct information regarding the payment and costly and lengthy debt collection processes can be made cheaper and easier.
- Banks and financial service providers: banks and financial service providers will be able to offer a digital only invoice payment experience. With the access to invoice data banks will be able to provide digital and embedded receivables and supply chain financing as well. Having invoice data enables the automation of transaction reconciliation. E-invoicing and automated transaction reconciliation has a combined savings potential up to 95% of costs compared to paper-based processes.
What is the problem with different e-invoicing formats?
Many companies face the issue of processing various e-invoicing formats, and that it is costly to manage: indeed, only the largest companies have resources to do the necessary data transformations for each invoice format for themselves. According to the Billentis report even these multinational companies deal with 3-20 different providers for managing incoming invoices and 20-160 different platforms for outgoing invoices and tax reporting due to different regulatory environments. It is easy to imagine that it is impossible to manage the variety of invoice data formats without standardisation, which is fostered by e-invoicing mandates. There are global standard initiatives such as the UBL, EDIFACT or UN/CEFACT Cross Industry Invoice standards, and there are regional or country specific standards often using the global standards as a basis reflecting local taxation rules. If the invoice is issued in the standard format, then the receiver system can straight-through process the standard invoices.
Until all entities use the standards, data transformations will be necessary. In this case technical expertise is necessary to do the data conversions. However, as more e-invoice formats are available, there will be resources with which these formats can be converted to the data standards.
Players with large customer bases such as banks can play a crucial role in making e-invoice data processing available to SMEs and corporates, as a value-added service to payments.
What is e-invoicing interoperability?
Let us go back in time, when there were no card schemes in place: in 1950 Diners Club issued its card together with a booklet saying which restaurants accept its card. Later larger banks started issuing their own cards, each with a merchant network, which resulted in overlapping merchant networks: merchants had to deal with many banks, while banks did not accept each other’s cards. This resulted in isolated payment networks, which were inefficient and not attractive enough to consumers. This was the time when card associations emerged: in 1966, BankAmericard issued by Bank of America became the US’s first nationwide licensed general-purpose credit card: a decade later it was renamed Visa. In the same year a group of Californian banks formed the Interbank Card Association (ITC), which later became MasterCard.
Card schemes created the opportunity to send and receive payments among many banks and merchants globally by expanding their network by defining and building a globally interoperable payment infrastructure.
The pre-card era happens without e-invoicing mandates: there are unconnected invoicing software products generating invoices, and there are isolated e-invoicing networks, where invoices cannot be sent and received/processed without additional IT development or manual intervention.
E-invoicing interoperability means the automatic and seamless exchange of e-invoices (together with structured invoice data), where the invoice document’s processing happens on a data basis, and manual intervention happens when the sender or receiver explicitly wants to have a manual action in their business processes (e.g., approval of the invoice).
The advantages of interoperability can be demonstrated with the comparison of the two figures below. Figure 4 shows the workflow where invoice processing happens on many channels, both in a paper-based way and digitally. This adds complexity to processes, which are reflected in costs, and the probability of errors increases.
Figure 4: Overview of the paper-based invoice management process
With e-invoicing and pure digital invoice management the process becomes much simpler, which decreases costs significantly, by 60-80%, compared to paper-based invoice management processes.
Figure 5: Overview of the electronic invoice management process
Because of e-invoicing interoperability, digital invoice data will be accessible in standardised formats, very similarly to the payment standards, which will largely contribute to providing digital only payment and financing services.
Why e-invoicing penetration differs by country?
The e-invoicing penetration varies by region/country because of the presence or lack of e-invoicing mandates or interoperability initiatives or pure market driven efforts.
Figure 6: Global e-invoicing penetration
The growth of e-invoicing penetration is driven by the following:
- Local tax regulations and e-invoicing mandates are the strongest driving forces for the increase of the penetration. The e-invoicing mandates (or invoice data reporting to tax authorities) can be mandatory or voluntary. In most cases e-invoicing regulations are introduced gradually, i.e., there are certain types of transactions (B2G/B2B/B2C) or revenue thresholds for legal entities which are subject to e-invoicing regulations, which are widened later.
There are e-invoicing or e-reporting mandates:
in place in several countries (e.g.: several countries in Latin America, India, Kazakhstan, Singapore, Italy, Hungary, Saudi Arabia)
on way or expected in the following 1-2 years (e.g.: France, Poland, Bulgaria, etc.) - In 2024 political consensus was reached on the EU’s ViDA directive, which aims for the introduction of mandatory e-invoicing and digital reporting for cross-border EU business-to-business (B2B) and business-to-government (B2G) supplies by July 1, 2030. However, EU countries will introduce domestic requirements similar to those included in ViDA at earlier dates. The EU e-invoicing mandate map can be seen below on Figure 7.
- Interoperability initiatives: in the Nordics e-invoicing interoperability initiatives were driven by the business sector, where the main driver was the potential efficiency increase that can be reached with e-invoicing. In the Nordics this initiative has been very successful, as without mandatory e-invoicing regulation, the penetration was already above 40% in 2019. In the US the DBNA (Digital Business Network Alliance) was launched in 2023, and its mission is to enhance the electronic exchange of business documents, particularly e-invoices. The Global Exchange Network Association (GENA), initially established as the European E-in-voicing Service Providers Association (EESPA), is an international trade association that focuses on the digital exchange of data and documents related to business transactions. Open Peppol provides a protocol for business document data exchange and its model is used as a basis for several countries’ e-invocing model.
There is an aim to converge to global interoperability, which is fostered by the Global Interoperability Forum (GIF) to build consensus for global business document exchange among member organizations such as the Business Payments Coalition (BPC), Connect ONCE, Digital Business Networks Alliance (DBNA), Global Exchange Network Association (GENA) and OpenPeppol.
Figure 7: European e-invoicing/e-reporting mandate map
Source: PWC
As a bank what can I do, if I want to launch value-added services using invoice data?
If there is not yet a mandatory regulation for e-invoicing, banks can still start digital invoice management services as value added services. Although the full savings potential cannot be utilized for businesses, banks can be the initiators of an e-invoicing and payment data ecosystem from the business sector.
If the mandate is already on the horizon, banks can start preparing how to provide value added services using invoice data, such as embedded invoice finance, 1-click invoice payments, and request-to-pay integrated with invoicing. Banks should start considering which use cases and services they want to provide and how they can get access to invoice data.
Why is there a momentum now for banks?
In e-invoicing we are in the moment when the first banks founded the card associations: There are global and local standardization initiatives and local e-invoicing mandates are going live from country to country. When the mandate is introduced in a country, banks have a good entry point to serve their customers better with improved payments and lending services.
Benefits will be inevitable for banks utilising the power of invoice data, starting from realising additional revenues from payments and financing services to gaining deposits and decreasing risk costs.
___